PayPal Turns to AI as Account Growth and Consumer Spending Slow

PayPal shares soared Tuesday (Oct. 28) in the wake of news that the company is integrating its wallet into OpenAI’s ChatGPT.

Beyond that headline-grabbing news, PayPal’s third-quarter earnings results, released before the market opened, revealed some puts and takes. Several key metrics, such as overall account growth, remained in single-digit territory, with some areas of acceleration in other parts of the business.

Consumer spending has shown pockets of pressure, too, according to management commentary on the earnings call.

The company logged 7% year-over-year growth in total payment volumes (TPV) on an FX-neutral basis to $458 billion, up from the 5% delivered along the same lines in the second quarter, according to an earnings presentation. Active accounts were 1% higher year over year to 438 million. As for the growth metrics, the TPV growth decelerated from the 9% seen in the third quarter of last year, and the growth in active accounts decelerated from the 2% logged in the second quarter.

Moving Beyond Online Payments

Management is looking for acceleration across new initiatives and markets. During the conference call with analysts, CEO Alex Chriss said the company is seeing “a positive inflection across our business.” The company is on track to see 6% to 7% growth in transaction margin dollars through the remainder of the year. That line item had been negative a year ago. Overall revenue growth accelerated to 7% in the most recent quarter, up from a second-quarter rate of 5%, measured year over year.

“Thanks to our omnichannel initiatives, we’ve accelerated branded experiences TPV growth to be between 7% and 8% on a currency-neutral basis over the past four quarters,” Chriss said during the call. “Our BNPL business is sustaining 20% volume growth quarter after quarter.”

“Our enterprise payments business has turned a corner, returning to volume growth and consistently contributing to company transaction margin dollar growth,” he added.

There’s also evidence of traction within active accounts, as transactions per account were up 5%.

Growth in Debit and BNPL

In discussing branded experiences, including PayPal, BNPL, Venmo and debit, Chriss said the segment represents “the single most important metric to track the progress on transformation from an online payments company to a commerce company. We need to be available everywhere a consumer wants to make a purchase. This is about more than being present across channels. It’s fundamentally expanding what PayPal Holdings Inc. means to our customers and the total spending we can capture. Historically, PayPal Holdings Inc. was synonymous with online retail payments.

“Today, we’re evolving the way consumers pay for all of their commerce needs, moving beyond retail into services, subscriptions, bills, everyday expenses and more.”

Debit card active customers transacted roughly six times more often than checkout-only accounts.

“We see a similar pattern with BNPL,” Chriss said during the call. “Its use drives an uplift in overall activity and engagement.”

BNPL volumes grew by more than 20%, and the company is on track to see $40 billion in BNPL-related TPV in 2025, where BNPL monthly active accounts were up 21% year over year in the most recent quarter.

TPV growth has some room for improvement.

“Given the competitive intensity online, we know more work is needed to close the gap between our performance and overall eCommerce growth,” Chriss said during the call. “Our strategy moving into next year centers on three priorities: continuing to scale our redesigned checkout experiences; improving how we are prioritized across merchants; and, importantly, driving biometric adoption.”

Chriss also said that “Venmo is at a clear inflection, with TPV growing 14% in the third quarter, continuing to accelerate from 12% in Q2 and 9% in 2024. Pay with Venmo just hit a milestone: $1 billion of TPV in September alone. And Pay with Venmo monthly active accounts grew by nearly 25% in the quarter. We hit a new record with our Venmo debit card, which attracted 1 million first-time users in Q3…”

Monthly Venmo debit active users were up 40%.

Chriss said PayPal’s partnership with OpenAI will “expand payments and commerce in ChatGPT, including adding PayPal Holdings Inc. branded checkout for shoppers and payment processing for merchants using instant checkout. This is a big win for PayPal…”

PayPal also announced its own agentic commerce services, which Chriss said will help merchants sell through multiple AI platforms, including OpenAI, Google and Perplexity.

“Merchants will have one integration to access consumers through multiple LLMs,” he said during the call. “Agentic commerce will take time, but we do believe consumer behavior will shift.”

Shares of the company were up 11% in early trading Tuesday.

Consumers Are Trading Down

Chief Financial Officer Jamie Miller said during the call that credit performance was strong. There was pressure on spending, however.

“Overall, we have seen relatively consistent growth in the number of checkout transactions, but basket sizes or average order value has decreased,” she said. “While still early in a back-end loaded quarter, we’ve observed this trend continuing through October.”

In looking ahead, that pressure may impact growth through the near term. Transaction margin dollar growth guidance of 6% to 7% (excluding interest) “assumes some deceleration in branded checkout growth relative to our third-quarter average,” Miller said. “From a volume perspective, the most important weeks and months of the quarter still lay ahead. That said, we are planning prudently, given recent spending trends and the uncertain macro backdrop. We are also cognizant of lapping strong consumer spending in the fourth quarter of last year.”

In response to analyst questions about consumers, Miller said: “When we got into September, we began to see macro-related deceleration, and that is both in the U.S. and in Europe… We’re seeing basket sizes just trade down, average order value being down, particularly in retail, where consumers are just being more selective. That behavior has continued into October. Obviously, it’s really early in the fourth quarter. The holiday season is very back-end loaded. It’s something we’re watching.”

Asked on the conference call about the artificial intelligence pacts, Chriss said: “For the LLMs themselves, it would take over a decade if they wanted to go and try to build the same kind of merchant ecosystem of the head, the torso and tail of merchants that PayPal Holdings Inc. has established over the last couple of decades. Instead, they get to partner once with us and get access to tens of millions of merchants with identity authentication, fraud protection and payment processing on a global scale. We really feel like we are connecting this ecosystem together.”